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Bipartisan “Sense of the Senate” takes a stand against state-based efforts to tax out of state companies

Thursday, November 3, 2011

Washington, D.C. – Whether by purchasing hand-made jewelry from Etsy, a sweater from an independent retailer on eBay or some vintage vinyl from a Portland record shop, millions of Americans each year utilize the internet to purchase products from small online retailers. However, there is movement in the Congress to give states the ability to create burdensome and unfair taxes on these transactions that cross state lines -- imposing taxes on businesses of other states selling goods online and creating an incredible burden for small online retailers.

U.S. Senators Ron Wyden (D-Ore.), Kelly Ayotte (R- N.H.) and a bipartisan group of Senators introduced a “Sense of the Senate” resolution stating that Congress will not enact legislation that gives state governments “the authority to impose any new burdensome or unfair tax collecting requirements on small Internet businesses and entrepreneurs.”

“Whenever there is an opportunity to invent new ways to tax goods and services, governments will take advantage of them. But allowing a scenario in which a small online retailer is forced to calculate, collect and remit thousands of different taxes for thousands of different tax jurisdictions is a barrier to entry that will discourage entrepreneurship,” said Wyden. “Small online storefronts are taxed differently than big-box brick and mortar operations because they are different. A state can force an in-state store to collect and remit sales tax because that store benefits from state services. But Virginia isn’t going to send the fire department to help out an online retailer operating out of a living room in Oregon. We are offering this resolution to reaffirm those differences and to ensure that Congress doesn’t enact legislation that will discourage entrepreneurs from using the Internet to grow their companies and our economy.”

“Congress should not impose onerous tax collection and remittance requirements on small Internet vendors, especially in a state like New Hampshire, which has no state sales tax,” Ayotte said. “Placing new requirements on these companies would mark a significant departure from the traditional hands-off approach that Congress has taken with respect to the Internet marketplace.”

There is no debate that states can force companies physically located in their state to collect and remit taxes on sales made in their state. But as retailers have increasingly used the Internet to reach customers in distant states, states have tried to assert their authority to force out-of-state companies to collect and remit their sales tax. The Supreme Court already rjected this argument in the mid-1990s -- Quill Corp. v. North Dakota – and Wyden’s Internet Tax Freedom Act built on it by barring states from imposing discriminatory Internet-only taxes.

The Sense of the Senate Resolution introduced today reaffirms those principles stating that “any Federal legislation that would upset the free and fair Internet marketplace and allow State governments to impose new and onerous and burdensome sales tax-collecting schemes on out-of-State, Internet-enabled small businesses would adversely impact hundreds of thousands of jobs, reduce consumer choice and impede the growth and development of interstate commerce.”